Judge reverses bankruptcy rulings against the Colony.

By Kurt Schultheis
| 4:00 a.m. August 3, 2011

The Colony property has virtually stood empty since August 2010, after unit owners took possession of their units, and the hotel closed. Photo by Rachel S. OÃ¢â‚¬â„¢Hara.

Longboat Key
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“Vindication” is the word Dr. Murray “Murf” Klauber uses to describe what he is feeling.

Tampa-based U.S. District Judge Steven D. Merryday, in two orders released July 27, reversed the actions and rulings on August 2009 Colony Beach & Tennis Resort bankruptcy rulings made by U.S. Bankruptcy Judge K. Rodney May.

Klauber appealed the August 2009 bankruptcy rulings, rulings that eventually led to the eradication of his hotel Partnership with the resort’s 232 unit owners (the Colony Association) and forced him to close his 45-year-old resort.

In essence, Merryday sided with Klauber on the fundamental argument Klauber has with the Association: Klauber has always maintained the Association was required to pay for repairs and make assessments to keep up the common elements of the property.

The Association disagreed, which led Klauber to file an April 2007 lawsuit seeking $14 million from the Association. That started years of legal battles that led to the resort’s closure in August 2010.

Merryday cites in his appeal ruling that the Association was still liable to make assessments to the property’s common elements, even if it voted not to pay for two separate emergency repair assessments that came before unit owners.

“Miracles do happen,” Klauber said. “I’m ecstatic. Honesty and justice has survived in this great country.”
Merryday stated several times in his appeal rulings that “the bankruptcy court erred” and went above and beyond its power when it ruled to dissolve the Partnership and claim unit owners who made their units available for hotel use didn’t need to pay assessments.

Sarasota attorney Morgan Bentley, who represents former Colony recreation leaseholder Carolyn Field, called the reversal rulings surprising.

“There are valid arguments on both sides,” Bentley said. “It was surprising to me to see the initial order, and, now, the reversal.”

Merryday’s rulings also mean Klauber may be able to seek damages from the Association’s rejection of Klauber’s previous proposals for resort redevelopment. The rulings also mean that lessors of a recreational lease that May rejected may be able to seek damages because 65 years of the 99-year lease still remain.

Both sides have differing opinions on what the rulings mean.

Klauber and Colony General Manager Katie Moulton released a joint statement to the Longboat Observer, expressing that they felt vindicated by the appeal rulings.

“The orders speak for themselves and obviously vindicate our operation of the Colony Beach and Tennis Resort and our claims against the association,” the release states. “Sadly, the Colony was closed wrongly as we claimed from the start of the legal disputes. We are eager to hear the decision on remedies to us as a result of the reversals, and are committed to continuing our efforts toward a rehabilitation of The Colony.”

Colony Association President Jay Yablon declined to comment, but sent an email to unit owners Thursday, calling the rulings “disappointing” but “not final.”

“These non-final rulings do not deter the Association from continuing forward with our efforts to revitalize the Colony,” Yablon wrote. “If anything, the remedy that the judge suggests in his ruling to get the Colony fixed is exactly what we have been intently focused upon already.”

Yablon, meanwhile, told unit owners they still intend to select a development proposal by the end of August and allow owners to vote on the proposal by early October. Any development chosen, however, could not move forward until the legal appeals are exhausted.